Is the economic stimulus plan working?

Recent campaign ads argue that the fiscal stimulus package hasn't helped at all.  Now I know that unemployment is still too high and many people are still searching for work so I'm not trying to say that economic conditions are great. However, I'm sick and tired of people saying that the Democrats are wasting  money.  What irks me most is that Republicans pretend that they would have done nothing to help the economy when in fact they proposed almost as much spending (the final price tag for the Obama plan was about $790 billion while the Republican alternative was $710 billion).  And the gigantic deficit is not only because of government spending, but it's also because tax revenue is way down due to the high unemployment numbers.  (Getting sidetracked: why won't Republicans LEAP at Obama's suggestion to freeze government spending?  Isn't that a no brainer?)

Anyway, I didn't see a lot of news coverage on last week's economic numbers that should help illustrate the immediate impact of the stimulus package.  Last Friday, the government released the numbers for economic growth in the 4th quarter of 2009.  To help put the number in perspective, let's look at some historical numbers of quarterly GDP growth.  (Source: the Bureau of Economic Analysis at http://www.bea.gov/national/xls/gdpchg.xls)

Some technical details on the numbers: Though economic growth (GDP) is reported quarterly, it is often expressed as an ANNUAL number and is adjusted for inflation.  This is called the real rate of growth as it is a measure of goods and services in the US economy.  Here is what it has looked like over the last 25 years - to go back more than 25 years ago just doesn't make much sense to me since our economy is so very different than it was in the 1950s.

Time Period	Quarterly Growth Rate
1984-2009 (Last 25 years)	2.8% average
2000-2009 (Last 10 years)	1.8% average
1993-2001 (Clinton)	3.8% average
3rd quarter 2008	-2.7%
4th quarter 2008	-5.4%
1st quarter 2009	-6.4% (stimulus package signed on 2/17/09)
2nd quarter 2009	-0.7%
3rd quarter 2009	+2.2%
4th quarter 2009	+5.7%

Look at how quickly the numbers have turned around since Obama became president.  Obama came in at a time when the economy was at its WORST - the 4th quarter 2008 and 1st quarter 2009 were the two worst quarters for economic growth in the last 25 years!  Yet, in less than one year, we've swung to +5.7% growth!

I'm not arguing that Obama is our economic savior, especially since unemployment must improve.  But how can someone say that the stimulus package didn't help?  Seriously?

Update on Obama economics

How's this for six months of progress under Obama? For the doubters, see the sources cited below. (HT to Jared Bernstein for consolidating the stats)

Indicators	Then	Now
Real GDP (1)	-6.4%	-1.0%
Job Losses (2)	-741,000	-247,000
Industrial Production (3)	-2.2%	0.5%
Home Prices (4)	-2.1%	0.7%
New Home Sales (5)	-10.2%	9.6%
Consumer Confidence (6)	37.4	54.1

1: Real annual growth rates, 2009q1 and 2009q2
2: Payroll employment declines from January 2009 and July 2009.
3: Monthly percent change, Jan 09 and July 09
4: Case-Schiller, monthly percent change, Jan 09 and June 09
5: Monthly percent change, Jan 09 and July 09
6: Conference Board Index, 1985=100, Jan 09 and Aug 09

A public view of Obama's economic policies

I'm not sure why there has been a lot of criticism over Obama's economic policies lately, but recently I've seen many people complain about the way that he has handled the economy and seen people go as far to say that Obama is actually ruining the economy. Many of these opinions come right wingers who simply want to bash any Democratic president.But these arguments hold no merit whatsoever and never have any credible evidence to back the claim.

The best forward looking indicator of economic activity is the stock market. Economists call this a "leading indicator" since it is a prediction of near term future activity. Measures like unemployment are lagging indicators - they simply reflect recent movements in the economy. Stock prices are based on professional money managers forecasts of FUTURE activity. In fact, investors support their predictions by "putting their money where their mouths are" - when they think things are looking good, they buy stocks.

Three common measures of stock market activity are the Dow Jones Industrial Average, the S&P 500, and Nasdaq. Without getting into much detail, these indexes simply capture different segments of the stock market. Dow and S&P look at large companies while Nasdaq looks at newer and smaller companies. Many right wingers might try to argue (without any supporting evidence) that Obama's decisions are bad for small business. To look at small businesses, I also review the Russell 2000 which captures the stock performance for the smallest publicly traded companies (not exactly Mom & Pop shops, but nonetheless an indicator of small business performance).

Let's look at what the investing public feels about Obama's economic policies. I provide some historical reference too, not to bash Bush, but to give people some perspective.

Dow: 10,578 in Jan 2001; 7,949 in Jan 2009; 9,211 today (+16%)
S&P: 1,343 in Jan 2001; 805 in Jan 2009; 991 today (+23%)
Nasdaq: 2,758 in Jan 2001; 1,441 in Jan 2009; 1,989 today (+38%)
Russell 2000: 490 in Jan 2001; 433 in Jan 2009; 558 today (+29%)

The bottom line is that the investing public is literally making a bet that Obama's decisions are good for the economy. I'm interested in a Bill O'Reilly "no spin zone" explanation as to why people would be buying stock if they truly believe the economy is ruined.

No wonder the US has mortgage problems

The huge mortgage bailout currently being debated will essentially help banks who make foolish decisions. However, the attached story is likely the most amazingly loose credit guidelines I've ever heard of. Banks appear to give their money away too easily and this story proves it.